U.S. Courts vs. Cook Islands Trusts: The Jurisdictional Gap

A Cook Islands trust’s protective value rests on a single structural fact: U.S. courts and Cook Islands courts operate as separate legal systems with no obligation to recognize each other’s orders regarding trust assets. This jurisdictional gap is not a loophole or an accident. It is the product of deliberate Cook Islands legislation and the basic principle of international law that one country’s courts do not automatically have authority over another country’s legal entities.

This article explains how that gap works—why U.S. courts cannot reach the trustee, why Cook Islands courts will not enforce U.S. judgments, and what a creditor must do to bridge the distance between the two systems.

Why U.S. Courts Cannot Reach the Trustee

Personal jurisdiction is the threshold requirement for any court to issue binding orders against a person or entity. A U.S. court has personal jurisdiction over persons who reside in, are domiciled in, or have sufficient contacts with the United States. A licensed Cook Islands trustee company that operates exclusively in the Cook Islands, maintains no U.S. office, holds no U.S. assets in its own name, and conducts no business in the United States does not meet any of these tests.

Because the court lacks personal jurisdiction over the trustee, it cannot order the trustee to do anything—not to transfer assets, not to produce documents, not to appear for examination. The trustee is not defying the court. The court simply has no authority over it.

This is the same jurisdictional principle that applies to any foreign entity with no U.S. presence. A U.S. court cannot order a bank in Switzerland to freeze an account, or direct a corporation in Singapore to produce its records, unless that entity has contacts with the United States sufficient to establish jurisdiction. The Cook Islands trustee’s position is no different.

What U.S. courts can do is exercise jurisdiction over the debtor—the person who created the trust and who resides in the United States. The court can order the debtor to take steps to cause the trustee to act, which is how turnover orders and contempt proceedings arise. But the court’s power runs against the debtor personally, not against the trust or the trustee.

Why Cook Islands Courts Will Not Enforce U.S. Judgments

Section 13D of the International Trusts Act provides that no foreign judgment shall be recognized or enforced by a Cook Islands court to the extent that the judgment is based on any law inconsistent with the Act or relates to a matter governed by Cook Islands law. Since virtually every U.S. judgment against a Cook Islands trust involves the application of U.S. fraudulent transfer law, U.S. bankruptcy law, or U.S. contempt powers—all of which are inconsistent with the International Trusts Act—Section 13D effectively bars enforcement of these judgments in the Cook Islands.

Section 13I reinforces this by declaring that no international trust governed by Cook Islands law is void, voidable, or defective by reason that it avoids or defeats rights conferred by foreign law, or that the trust’s provisions are inconsistent with foreign law. The statute expressly contemplates that Cook Islands trusts will conflict with the laws of the settlor’s home jurisdiction and provides that such conflict does not affect the trust’s validity.

Section 13H completes the framework by providing that all questions regarding an international trust governed by Cook Islands law are determined according to Cook Islands law, without reference to the laws of any other jurisdiction. This choice-of-law provision means that a Cook Islands court evaluating a creditor’s claim will apply Cook Islands standards—the beyond-reasonable-doubt burden of proof, the short limitation periods, the narrow definition of fraudulent intent—rather than the more creditor-friendly standards of U.S. law.

The practical result is that a U.S. judgment has no direct effect on trust assets held in the Cook Islands. The creditor cannot present the U.S. judgment to a Cook Islands court and obtain enforcement. The judgment is, from the Cook Islands court’s perspective, irrelevant to the question of whether the trust or its assets can be reached.

What the Creditor Must Do Instead

To reach assets held in a Cook Islands trust, the creditor must start over. This means initiating entirely new proceedings in the High Court of the Cook Islands, under Cook Islands law, subject to Cook Islands procedural requirements.

The creditor must retain Cook Islands counsel. Contingency fee arrangements are prohibited, so the creditor pays legal fees regardless of outcome. The creditor must post a litigation bond before proceedings commence, typically $25,000 to $50,000 or more. The creditor must file a sworn affidavit at the time of filing that satisfies the evidentiary requirements of Section 13B—including demonstrating beyond a reasonable doubt that the transfer was made with the principal intent to defraud that specific creditor. Discovery and interlocutory relief are not available unless this threshold is met. And the creditor must do all of this within the limitation periods imposed by the Act.

Even if the creditor succeeds, the remedy is limited. The trust is not voided. The trustee becomes liable to satisfy the creditor’s claim only to the extent of the property that would have been available absent the transfer.

Why This Matters

The jurisdictional gap is the mechanism that transforms a U.S. judgment from a collection tool into a starting point for negotiation. A creditor with a U.S. judgment against a debtor whose assets are held domestically can levy, garnish, and execute relatively quickly. A creditor with a U.S. judgment against a debtor whose assets are held in a Cook Islands trust faces an entirely different cost-benefit calculation.

The judgment is worth what the creditor can collect on it. When collection requires initiating new litigation in a foreign jurisdiction with debtor-friendly laws, high procedural barriers, and no guarantee of success, the expected recovery value of the judgment drops substantially. This is the dynamic that produces settlements at reduced amounts—not because the trust makes the debtor legally immune, but because it makes full collection economically irrational for most creditors.

The other articles in the litigation section explain the specific enforcement tools U.S. courts use and how they interact with Cook Islands trust structures. This article explains why those tools have limited reach: two separate legal systems, no mutual obligation to enforce each other’s orders, and a statutory framework designed to keep it that way.

For comprehensive information about Cook Islands trust planning and structure, return to the Cook Islands trust overview.